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When you can take a charitable deduction, and how to do it

5 tax tips

Most taxpayers expect that if they give money to a charity, they can claim a deduction for it on their tax return. But that’s not always the case.

To get a tax deduction for charitable donations, you must file a Form 1040 and itemize your deductions. If your total itemized deductions -- such as medical expenses, state income tax, real estate tax, home mortgage interest, gifts to charity, casualty and theft losses, and others -- don’t exceed your applicable standard deduction, you can’t claim a deduction for charitable donations.

And because about 75 percent of taxpayers claim the standard deduction, only the remaining quarter can actually claim a charitable gift deduction.

If you’re in that 25 percent, the IRS has rules for the documentation you need to get and keep, and they vary depending on the type and value of your donations.

First, let’s cover “cash donations,” which include those made by cash, check, payroll deduction, cell phone texting, debit or credit card. These rules are straightforward when the total cash donated is less than $250.

For actual cash donations, you should obtain and keep a written receipt or acknowledgement from the qualified charity organization showing the amount and whether you received any goods or services in exchange.

For gifts by check or bank card, you must keep a bank or credit card record showing the amount and date of the donation. 

If you made charitable donations via payroll deduction, you should keep a copy of your year-end pay statement showing the total of the deductions you made to charity in that year. If you made a charitable gift using a text message, a cell phone bill indicating the charge for this donation will meet the recordkeeping requirement.

When you claim a deduction for donations equaling $250 or more, you should similarly obtain and keep a written receipt or acknowledgement from the qualified charity organization showing the amount given and whether the charity provided any goods or services in exchanget. 

You must receive this written acknowledgement no later than the date you file the tax return. Most charities mail these acknowledgements automatically, but not all do. It’s your responsibility to have it, so you should contact the charity if there’s a delay.  

How a U.S. "border tax" could hit your wallet
How a U.S. "border tax" could hit your wallet

For all charitable gifts you’re required only to keep these records -- you don’t have to submit them or file any additional forms with your return.

Remember, with any charitable gifts, if you’ve received a benefit such as discounted merchandise, tickets to an event or other goods and services, you can deduct only the amount of your donations that exceeds the benefit’s fair market value.

For gifts of property, the rules are more involved.

For noncash gifts less than $500 (typically these are donations of clothing, food, household items, etc.), you’ll need to obtain and keep a written acknowledgement from the charity stating the property contributed and whether the organization provided any goods or services in exchange.

If the items are new and never used, generally you should be able to claim the value of what you paid for them. If they’re used, they must be in at least good condition to be deductible. The amount of the donation you can claim is limited to the fair market value of the items -- what a willing buyer would pay for them. 

Don’t expect the charity to tell you the amount you can deduct for your donated items -- they’re not allowed to. But many organizations, such as Goodwill, publish a Donation Value Guide that lists the average prices of the typical items for sale in their thrift stores.

If the total noncash contributions claimed for the year is $500 or more, you must also complete and attach IRS Form 8283 Noncash Charitable Contributions to your tax return. This form requires you to provide additional information such as the name and address of the charity, description of the donated property, the date and how you acquired the property, your cost of the property, the fair market value and the method you used to determine the fair market value.

If you donate an item valued at more than $5,000, such as art, equipment or furniture, in addition to submitting Form 8283, you’ll also need to attach an appraisal from a qualified appraiser that justifies the value of property given. The appraisal must be obtained no earlier than 60 days before the deed of gift is signed and no later than the filing date of the tax return.

If the gift is a number of similar items, such as a collection of photographs, the total value of the group is used for these requirements.

Finally, vehicle donations have special rules. That’s a topic for another day.